Findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) suggested Thursday that businesses suffered the first drop in demand for goods and services since partial lockdowns to contain the third wave of the pandemic in April 2021.
Firms responded by cutting down on output since April last year, hiring at the slowest pace since last July and slashing staff salaries marginally as a precaution to stay afloat.
Kenyan firms in January slashed expenditure on workers for the first time in seven months, citing a sharp fall in sales compared with December amid the Omicron threat.
Findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) suggested Thursday that businesses suffered the first drop in demand for goods and services since partial lockdowns to contain the third wave of the pandemic in April 2021.
Firms responded by cutting down on output since April last year, hiring at the slowest pace since last July and slashing staff salaries marginally as a precaution to stay afloat in future amid uncertainties surrounding the Omicron coronavirus variant.
“Domestic demand fell significantly as client spending was negatively affected by rising inflation and a resurgence in Covid-19 due to the Omicron variant,” Stanbic Bank regional economist Kuria Kamau wrote in the PMI report.
“As a result of the lower demand, firms were forced to reduce their output and purchases of raw materials for the first time since April 2021.”
The overall PMI reading — a measure for month-on-month private sector activity such as output, new orders and employment — fell to 47.6 in January from a 14-month high of 53.7 in December.
That was a pointer to a downturn in economic activity last month, the first since April 2021 when PMI plunged to 41.5 when public health authorities imposed partial shutdowns and travel restrictions in five counties, including Nairobi.
PMI reading above 50 denotes month-on-month growth in business deals, while that below signals a contraction.
The marginal slash on salaries and slowest growth in employment in six months because of “weaker sales” will worry job seekers who have been optimistic of a turnaround in the labour market which was hit by layoffs, pay cuts and unpaid leave policies at height of the pandemic.
Corporate managers, who were surveyed between January 12 and 27, said consumers were deterred by the higher cost of goods and services at the start of the year as firms adjusted prices in response to the fastest rise in operating expenses in six months.
The input costs were largely driven by higher prices of raw materials and increased tax burdens, according to the report based on feedback from about 400 managers drawn from key sectors such as agriculture, manufacturing, construction, wholesale, retail and services.
Demand was also hurt by Omicron-induced drop in travel with the wholesale and retail sector suffering “strongest” fall in orders amongst the five sectors surveyed, prompting retail stores to reduce workers.
